Chicago-Kent Law Review Volume 87 Issue 1 Symposium on Medical Malpractice and Compensation in Global Perspective: Part II Article 8 December 2011 Medical Malpractice and Compensation in Global Perspective: How Does the U.S. Do It? David A. Hyman Charles Silver Follow this and additional works at: hps://scholarship.kentlaw.iit.edu/cklawreview Part of the Health Law and Policy Commons , Litigation Commons , Medical Jurisprudence Commons , and the Torts Commons is Article is brought to you for free and open access by Scholarly Commons @ IIT Chicago-Kent College of Law. It has been accepted for inclusion in Chicago-Kent Law Review by an authorized editor of Scholarly Commons @ IIT Chicago-Kent College of Law. For more information, please contact [email protected]. Recommended Citation David A. Hyman & Charles Silver, Medical Malpractice and Compensation in Global Perspective: How Does the U.S. Do It?, 87 Chi.-Kent L. Rev. 163 (2012). Available at: hps://scholarship.kentlaw.iit.edu/cklawreview/vol87/iss1/8
Transcript
Chicago-Kent Law ReviewVolume 87Issue 1 Symposium on Medical Malpractice andCompensation in Global Perspective: Part II
Article 8
December 2011
Medical Malpractice and Compensation in GlobalPerspective: How Does the U.S. Do It?David A. Hyman
Charles Silver
Follow this and additional works at: https://scholarship.kentlaw.iit.edu/cklawreview
Part of the Health Law and Policy Commons, Litigation Commons, Medical JurisprudenceCommons, and the Torts Commons
This Article is brought to you for free and open access by Scholarly Commons @ IIT Chicago-Kent College of Law. It has been accepted for inclusionin Chicago-Kent Law Review by an authorized editor of Scholarly Commons @ IIT Chicago-Kent College of Law. For more information, pleasecontact [email protected].
Recommended CitationDavid A. Hyman & Charles Silver, Medical Malpractice and Compensation in Global Perspective: How Does the U.S. Do It?, 87 Chi.-KentL. Rev. 163 (2012).Available at: https://scholarship.kentlaw.iit.edu/cklawreview/vol87/iss1/8
MEDICAL MALPRACTICE AND COMPENSATION IN GLOBALPERSPECTIVE: HOW DOES THE U.S. DO IT?
DAVID A. HYMAN* & CHARLES SILVER"
INTRODUCTION
We face a daunting challenge: describe in limited space the manner inwhich the United States regulates medical practice by compensating pa-tients harmed by medical treatments, and summarize the enormous empiri-cal literature addressing these subjects. The task would be difficult even ifthe United States had a single system for handling these issues. In fact, ithas a patchwork of arrangements that divide responsibility among diversegovernments (federal and state), regulators (medical boards, insurancecommissioners, and others), and private entities (including, but not limitedto, hospitals, insurance carriers, physicians, and patients). The health caresystem in the U.S. is famously fragmented, making both regulation andsummarization trying affairs.'
One level of complexity is the result of federalism: the United Stateshas more than fifty distinct state-level regulatory and legal systems, eachwith its own variations and idiosyncrasies. 2 Consider a simple example:more than thirty states cap damages in medical malpractice cases. In statesthat limit damages, the details of the cap vary widely. A few states restricttotal damages, but most limit only non-economic damages (i.e., pain andsuffering). The caps are set at different levels, and only some adjust forinflation. Some caps vary depending on whether the plaintiff is deceased.Others are tied to the number of defendants. Some impose different caps
* David A. Hyman is the Richard W. and Marie L. Corman Professor and Director of the Ep-stein Program in Health Law and Policy and Professor of Medicine at the University of Illinois Collegeof Law.
** Charles Silver is the Roy W. and Eugenia C. McDonald Endowed Chair in Civil Procedureand Co-Director of the Center on Lawyers, Civil Justice, and the Media at the University of Texas atAustin School of Law.
1. Einer Elhauge, Why We Should Care About Health Care Fragmentation and 1-low To Fix It, inTHE FRAGMENTATION OF U.S. HEALTH CARE: CAUSES AND SOLUTIONS 1, 3 (Einer Elhauge ed., 2010).
2. Yes, we know how many states there are. But, when you include the District of Columbia andPuerto Rico (not to mention Guam and the other territories) there are more than fifty separate systemsof malpractice law/entities with regulatory authority over the practice of medicine. Thus, there are fifty-six Medicaid program, even though there are only fifty states. U.S. DEP'T. OF HEALTH & HUMANSERVS., MEDICAID PROGRAM OVERVIEW, A PROFILE OF MEDICAID, 6 (Sept. 2000), available athttps://www.cms.gov/TheChartSeries/downloads/2Tchartbk.pdf.
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depending on whether the defendant is a physician or an institutional de-fendant (i.e., a hospital or nursing home). Thus, there is substantial state-level variation in the amount of damages that may be awarded in medicalmalpractice cases even in states that cap damages-variation that naturallyincreases when states that do not cap damages are added to the mix.
Further complications result from the interaction of the state and fed-eral systems. Although states possess primary regulatory authority overboth the practice of medicine and civil and criminal litigation, the federalgovernment plays an important role as a major purchaser of health careservices: through Medicare, Medicaid, and SCHIP, and as a provider ofhealth care services through the Veterans Administration and the IndianHealth Service; through the U.S. Food & Drug Administration's exclusivelicensing authority regarding the sale of pharmaceuticals and medical de-vices; through federal regulation of controlled substances (which influencespain management practices); and through federal regulation of billing prac-tices (through the civil False Claims Act and criminal prohibitions onhealth care fraud and abuse). The federal government's role may also growif it ends up operating the exchanges that are to be adopted pursuant to thePatient Protection and Affordable Care Act (PPACA).
To be sure, federal courts play a less significant role than state courts.Federal authority over malpractice is limited to cases brought under theFederal Tort Claims Act, and concurrent jurisdiction in cases involvingcitizens of different states where more than $75,000 is at issue. 3 But federalcourts have played leading roles in high-profile lawsuits affecting healthcare policies, including cases in which physicians have challenged privatepayers' reimbursement practices, cases in which physicians, pharmacies,and nursing homes have sought to overturn reductions in Medicaid pay-ments imposed by states, and cases in which states and private parties haveargued that the PPACA is unconstitutional.
A final level of complexity results from the multiplicity of entitieswith implicit or explicit authority over the practice of medicine, includingmedical schools, residency programs, accrediting agencies, specialtyboards, teaching and community hospitals, courts, and state licensing agen-cies. State and federal agencies also maintain registries or databases ofadverse events, payouts in malpractice cases, infection rates, and mortalityand morbidity rates for medical procedures. If one broadens the field toencompass insurers, there are public and private entities covering varioussections of the population, whose purchasing and coverage rules can influ-
3. The Federal Tort Claims Act covers malpractice actions involving federal employees andvolunteers at federally qualified health centers and free clinics.
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ence the frequency of adverse medical events and the financial conse-quences for those who suffer a medical injury. Liability insurers, who ab-sorb losses and sometimes refuse to continue coverage, may also influencetreatment patterns.
There is one area marked by simplicity and clarity: apart from thepopulation-specific coverage of Medicare (people who are sixty-five yearsand older and those in chronic renal failure), Medicaid (the poor), andSCHIP (children below a specified income level), the United States doesnot have a social insurance system. Thus, for a clear majority of the popula-tion, there is no occasion to describe the interaction between the socialinsurance and tort systems. Even for those who participate in these pro-grams, there is little to discuss, since they have historically occupied differ-ent spheres. Administrators of the Medicare and Medicaid programs, forexample, have long viewed their job as paying for the care received bytheir beneficiaries, and have not troubled themselves unduly about the qual-ity and cost-effectiveness of that care. Until quite recently, when a Medi-care or Medicaid beneficiary suffered a medical injury, both programssimply paid the resulting bills-creating exactly the wrong incentives. Nei-ther program took steps to improve the way providers responded to mal-practice claims. To the contrary, as things currently stand, both programsprobably weaken the liability system's ability to police negligent practi-tioners. Because both programs pay for the bills that result from a medicalinjury, they have a statutory subrogation right that entitles them to share inany recovery. The amounts left over once Medicare and Medicaid havebeen repaid are often too small to motivate patients to sue-let alone tomotivate a plaintiffs' attorney to take their cases.
Part I turns to a more detailed description of the details of the regula-tory, liability, and compensation systems. Part II explores the literature onmedical error/adverse events, and the performance of the liability system.Part III evaluates how ordinary citizens feel about the liability system. PartIV describes how incentives shape the performance of these interlockingsystems. Part V offers a perspective from our work with closed malpracticeclaims from Texas. Part VI concludes.
I. DETAILS OF THE APPLICABLE REGULATORY AND
LIABILITY/COMPENSATION SYSTEMS
A. Regulating the Delivery ofMedical Care
To practice medicine, an individual must graduate from a medicalschool, complete an accredited residency, and obtain a license to practice
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medicine from a state licensing board-with the requirements varying fromstate to state. Licenses do not typically differentiate based on medical spe-cialty; both a pediatrician and a neurosurgeon secure an identical license topractice medicine from the issuing authority. All fifty states impose a re-quirement for Continuing Medical Education (CME) to maintain licen-sure.4 However, no state requires malpractice/error-prone physicians toundergo more frequent CME, or take affirmative steps to reduce the fre-quency of these problems. A physician may obtain board certification in aparticular specialty or specialties, but certification is voluntary. However,many boards require CME as a condition of continued board certification.
Once physicians are licensed, other entities can influence the scope oftheir practice. A physician who wishes to admit patients to a hospital mustobtain "privileges" at that institution. Hospitals can condition the grantingof privileges in various ways, and may limit the services that physiciansmay provide using hospital resources (i.e., a hospital is unlikely to allow apediatrician to perform neurosurgery). Hospitals generally require physi-cians to maintain malpractice coverage in a specified amount, with theprecise amount varying from hospital to hospital. Physicians may also be-come direct employees of a hospital or of a managed care plan, and thoseentities can also impose restrictions on the scope of practice.
Hospitals are accredited by private entities. These accrediting entitiesprofoundly influence the behavior of hospitals, because loss of accredita-tion means that the hospital may not be paid for the services it provides (atleast not by public payers). 5
State medical boards are supposed to regulate the quality of healthcare provided by state-licensed physicians, but in practice these boards arelax. A 2011 report studied how state medical boards handled the cases of10,672 physicians whose clinical privileges were revoked or restricted by ahospital.6 They found that state medical boards had taken no action in over
4. State Medical Licensure Requirements and Statistics 2010, AMERICAN MEDICALASSOCIATION (2010), available at http://www.ama-assn.org/amal/pub/upload/mm/40/tablel6.pdf.
5. The Joint Commission on Healthcare Organizations (JCAHO) has played a significant role inrecent years in encouraging hospitals to adopt patient safety initiatives. Kelly J. Devers et al., What IsDriving Hospitals' Patient-Safety Efforts?, 23 HEALTH AFF. 103, 112-13 (2004). JCAHO has notalways had this reputation, as an excerpt from an online posting by a hospital administrator indicates:
We never worried about JCAHO until the three months prior and the two days of the inspec-tion. In the three months prior we backdated all the documentation that we needed to getthrough the inspection, and in the two days they were there we spent telling them how fo-cused we were on quality, etc. As long as the paperwork is in order, people can be dying inthe halls and there could be guppies in the IV fluid; the JCAHO wouldn't notice.
MARK A. HALL ET AL., THE LAW OF HEALTH CARE FINANCE AND REGULATION 373 (1st ed. 2005).6. See generally ALAN LEVINE ET AL., STATE MEDICAL BOARDS FAIL TO DISCIPLINE DOCTORS
WITH HOSPITAL ACTIONS AGAINST THEM (2011), available athttp://www.citizen.org/documents/1 937.pdf.
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half of these cases. Because hospitals generally restrict clinical privilegesonly in response to the worst cases, this study suggests that state medicalboards are failing to address even the problems that are identified for themby others.
In reality, the most significant "regulator" of health care practice is thepayment system. At least at the federal level, payment policy is health poli-cy, and health policy is payment policy. In recent years, public and privatepayers have taken baby steps in the direction of using their payment sys-tems to reward error-free care. These programs have been variously de-scribed as "value-based purchasing," "payment for performance," and non-payment for "never events." Unfortunately, these efforts have not changedthe core incentives created by the dominant encounter-based, quality-insensitive, fee-for-service payment system that otherwise rules the roost.
B. Liability/Compensation Systems
1. Fault-Based (Negligence)
In the United States, the determination of liability and compensation isalmost entirely the province of the civil tort system. As detailed below,there are small pockets of no-fault liability, but negligence is the rule formost patients in most settings. Plaintiffs may not recover for injuries stem-ming from adverse events or errors unless a provider was negligent-andas outlined in Part III, most negligently injured patients do not recover,regardless.
Malpractice straddles the divide between contract and tort. Most law-suits arise out of a consensual relationship between physician and patient,creating an implied duty to exercise reasonable care. States have struckdown attempts to modify or eliminate this duty by contract, although manyhave allowed contracting over other terms (such as whether plaintiffs mustarbitrate their claims). States have also experimented with a wide array oftort reforms, including a number of process-based reforms (e.g., screeningpanels, certificates of merit, and abbreviated statutes of limitation). Table 1gives a sense of the range of tort reforms that jurisdictions have adopted.
Mandatory reporting of closed claimsMedical Quality Peer review protectionsReforms Mandatory reporting of liability payouts and errors
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Requirement for continuing medical educationTort Reforms Aimed at the number of lawsuits
Arbitration
Attorney fee controls
Certificates of merit
Pretrial screening panels
Aimed at the size of recoveries
Damage caps (punitive, non-economic, and total damages)
Abrogation of joint and several liability
Offset for collateral source payments
Aimed at plaintiffs' difficulty (or costs) of winning
Expert witness requirements
Informed consent limits
Professional standard of care, and not ordinary negligence
Aimed at functioning/cost of judicial process
Mediation
Notice of intent to sue
Mandatory pretrial conferences
Alternative Dispute ResolutionSource: See Randall R. Bovbjerg, Legislation on Medical Malpractice: Further Developmentsand a Preliminary Report Card, 22 U.C. DAVIs L. REV. 499 (1989).
The failure to exercise reasonable care is treated as a tort, and tortremedies are available for breach. For most specialties, states have largelyabandoned the "locality rule" that treated compliance with local custom asa complete defense. However, legislatures have responded by imposinglimitations on who can testify about the standard of care-effectively re-imposing a modified version of the locality rule while simultaneously in-creasing the costs of litigating such cases (since limiting the supply of ex-perts effectively increases the fees that those experts can command).
In order to recover, plaintiffs must prove "negligence"-that theirproviders failed to exercise due care. As always, the plaintiff must establishthe four elements of a tort lawsuit: (1) duty, (2) breach, (3) proximatecause, and (4) damages. "Duty" means that there was a relationship be-tween patient and provider sufficient to trigger an obligation to exercisedue care in the treatment of the patient. (Most of the time, duty is a non-issue, particularly if there is a pre-existing relationship between providerand patient.) "Breach" means that the provider failed to exercise the careexpected of a reasonably skilled provider. Establishing breach requiresexpert testimony, since the touchstone for establishing liability is proof of a
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deviation from the standard of care. (In some states, customary treatment isby definition not negligent, but most states have moved to a more demand-ing standard.)7 "Proximate cause" means that the breach of the standard ofcare was the cause in fact of compensable injury. Thus, injuries that are tooremotely related to the alleged cause cannot result in compensation.
Causation often involves complicated issues, which is part of the rea-son that malpractice litigation is expensive. Indeed, for most malpracticecases, causation is the primary issue in dispute. Many states allow for re-covery of "lost chance," but there is variation in how large the chance mustbe. Similarly, although all states allow for recovery if the physician has notobtained informed consent, such cases are not usually sufficiently remuner-ative for them to be brought, barring exceptional circumstances.8
In all states, the plaintiff bears the burden of proof on all issues (i.e.,they must prove their position is "more likely than not"). If the plaintiff isseeking punitive damages, many states impose a higher burden of proof("clear and convincing evidence") and other procedural barriers. There arealso constitutional limitations on the size of punitive damages (they mustgenerally be less than ten times the compensatory damages) and the pro-cesses employed to determine whether such damages are appropriate. 9 Tobe sure, punitive damages are not that common in medical malpracticecases, occurring in fewer than 5 percent of tried and settled cases.10
Compensatory damages take two forms: economic (e.g., lost earningsand medical bills), and non-economic (e.g., pain and suffering). Provingdamages is generally straightforward for economic losses, but can be diffi-cult or contentious when parties disagree about patients' future earnings orthe severity or likely duration of patients' disabilities. Non-economic dam-ages are more speculative, but they are strongly correlated with economicdamages. 1
7. Philip G. Peters, The Quiet Demise of Deference to Custom: Malpractice Law at the Millenni-um, 57 WASH. & LEE L. REV. 163, 170, 188 (2000).
8. David M. Studdert et al., Claims, Errors, and Compensation Payments in Medical Malprac-tice, 354 NEw ENG. J. MED. 2024, 2026 (2006).
9. See State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 425 (2003); Nitin Sud, Puni-tive Damages: Achieving Fairness and Consistency after State Farm v. Campbell, 72 DEF. COUNS. J.67, 77 (2005).
10. See THOMAS H. COHEN, U.S. DEP'T OF JUSTICE, NCJ No. 203098, MEDICAL MALPRACTICETRIALS AND VERDICTS IN LARGE COUNTIES, 2001 2 (2004), available athttp://bjs.ojp.usdoj.gov/content/pub/pdf/mmtvlcOl.pdf; Bernard Black et al., Stability, Not Crisis:Medical Malpractice Claim Outcomes in Texas, 1988-2002, 2 J. EMPIRICAL LEGAL STUD. 207, 213(2005).
11. Id.
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Criminal liability for malpractice is extraordinarily rare. (One of us re-ferred to it elsewhere as "the unicorn" of malpractice policy).1 2 The deci-sion to initiate such cases lies with prosecutors at the county, state, andfederal level, some of whom are elected. When such cases are brought, theyare often the result of a highly visible death that resulted from egregiousmisconduct. For example, a pharmacist who diluted chemotherapy drugswas criminally prosecuted and sentenced to prison.13 A less clear-cut sce-nario involves physicians who practice pain management, and were prose-cuted for writing "excess" prescriptions after patients overdosed or werecaught selling the pharmaceuticals.14 Finally, nurses have been prosecutedfor criminal negligence following the administration of an incorrect dose orthe wrong medicine to a patient that subsequently died.' 5
In some instances, civil fraud claims are brought against physiciansfor conduct that could also be characterized as malpractice. Such claims areoften initiated by whistle-blowers, who receive a share of any proceeds. Forexample, after two whistle-blowers filed complaints, the Department ofJustice pursued False Claims Act litigation against two physicians and ahospital for performing unnecessary surgery. In this case, individual plain-tiffs also brought malpractice claims against the physicians and hospital.Even though the facts were quite egregious, criminal charges were notbrought, and there was a package settlement of the malpractice and civilFalse Claims Act claims.16
Dissatisfied patients have two primary means of complaining. Theycan contact the relevant state's licensing board, which may revoke or limitthe licenses of physicians found to have acted improperly. The utility ofthis mechanism varies greatly from state to state-some are much morelikely to initiate disciplinary proceedings against individual physicians thanothers-but speaking generally it seems that only the most egregious casesare likely to interest state medical boards.17
12. See David A. Hyman, Collateral Damage, 27 HEALTH AFF. 1476, 1477 (2008).13. Pam Belluck, Prosecutors Say Greed Drove Pharmacist to Dilute Drugs, N.Y. TIMES, Aug.
18, 2001, available at http://www.nvtines.com/2001/08/18/us/Prosecutors-say-greed-drove-pharmacist-to-dilute-drugs.html; National Briefing I Midwest: Missouri: 30-Year Sentence For Druggist, N.Y.TIMES, Dec. 6, 2002, available at http://www.nytimes.com/2002/12/06/us/national-briefing-midwest-missouri-30-year-sentence-for-druggist.html.
14. Marc Kaufman, DEA Revises Rule on Prescribing Painkillers, WASH. POST, Sept. 7, 2006,available at http://www.washingtonpost.com/wp-dyn/content/article/2006/09/06/AR2006090601756.html.
15. Rebecca Cady, Criminal Prosecution for Nursing Errors, II JONA's Healthcare Law, Ethicsand Regulation 10 (Jan-Mar. 2009).
16. STEPHEN KLAIDMAN, CORONARY: A TRUE STORY OF MEDICINE GONE AWRY 261-81 (2007).
17. See generally LEVINE ET AL., supra note 6.
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Dissatisfied patients can also sue, when they can find lawyers willingto represent them. Securing a recovery when liability is contested is all butimpossible without help from a plaintiffs' lawyer.' 8 Obtaining counsel isharder than one might imagine. Because plaintiffs' lawyers work on con-tingency, they screen cases carefully and decline most requests for repre-sentation. One study found that a plaintiffs' law firm declined twenty-nineof thirty requests for representation, a 97 percent rejection rate, and alsopaid independent physician-experts to review the cases it took.19 Oncecases are accepted, plaintiffs' lawyers research claims extensively usingcompulsory process, and they frequently drop cases when new informationcreates doubt about the merits.
In exchange for accepting a case, a plaintiffs' lawyer will typicallydemand a contingent fee of one-third or more of any proceeds plus anyexpenses incurred. If the case is unsuccessful, the plaintiff need not payanything. Health insurers who paid for post-injury treatment are entitled toreimbursement out of the proceeds of any malpractice claim. In practice,this means that plaintiffs often walk away with less than half the amountrecovered.
When there is a payment, it is most often the result of a voluntary set-tlement. Relatively few claims (5-10 percent) go to trial, and when the caseis tried, defendant-physicians win 75-80 percent of the time. Although thephysician is the named defendant, the real party in interest is almost alwaysa private malpractice insurer (from whom the physician has purchased apolicy). Physicians rarely use personal assets to satisfy malpracticeclaims.20 As a practical matter, the stakes in malpractice suits are cappedby the limits of physicians' insurance coverage, regardless of the severityof patients' injuries or the amounts that juries believe patients ought toreceive.21
Federal law requires insurance companies and other entities to reportpayouts in malpractice cases to the National Practitioner Data Bank(NPDB). Although researchers use the NPDB to study trends in malprac-
18. Charles Silver & David A. Hyman, Access to Justice in a World Without Lawyers: Evidencefrom Texas Bodily Injury Claims, 37 FORDHAM URB. L. J. 357, 373-74 (2010).
19. LaRae 1. Huycke & Mark M. Huycke, Characteristics of Potential Plaintiffs in MalpracticeLitigation, 120 ANNALS INTERNAL MED. 792, 796 (1994).
20. Kathryn Zeiler et al., Physicians' Insurance Limits and Malpractice Payments: Evidence fromTexas Closed Claims 1990-2003, 36 J. LEGAL STUD. 9, 11 (2007).
21. David A. Hyman et al., Do Defendants Pay What Juries Award? Post- Verdict Haircuts inTexas Medical Malpractice Cases, 1988-2003, 4 J. EMPIRICAL LEGAL STUD. 3, 53 (2007); CharlesSilver et al., Malpractice Payouts and Malpractice Insurance: Evidence from Texas Closed Claims,1990-2003, 33 THE GENEVA PAPERS ON RISK & INS.-ISSUES & PRACTICE 177, 188 (2008); Zeiler etal., supra note 20, at 10.
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tice cases and other matters, neither providers nor regulators appear to usethe information it contains to improve quality of care or reduce the fre-quency of medical errors. State laws require hospitals to report hospital-acquired conditions, including injuries patient suffer as a result of medicalmistakes, but under-reporting is rampant. One report found the 90'percentof errors went unreported.22
In most states, clinical practice guidelines have not played a materialrole in malpractice litigation. Such guidelines can serve as either a sword(where deviation from the guideline is deemed to create a prima facie orper se case of malpractice) or a shield (where compliance with the guide-line eliminates the possibility of liability). One scholar recently proposedthat providers should be immune from civil liability when they complywith treatment guidelines promulgated by private entities, but the privateentities would be liable if their guidelines were negligently constructed.23
2. No-Fault Liability (Strict Liability)
No-fault liability for medical error has proven far more popular withacademics than with legislators. There are only a few pockets of strict-liability for medical malpractice in the United States. Qualifying birth inju-ry cases in Virginia and Florida are excluded from the tort system, and arehandled through an administrative system. Ironically, plaintiffs with strongcases prefer to litigate in the tort system, since they can recover a greateramount, while plaintiffs with weak cases prefer the no-fault system. Prod-ucts liability cases involving medical devices (whether the plaintiff is alleg-ing design or manufacturing defect) also qualify for strict liabilitytreatment.
Vaccine injury cases are handled by the U.S. Court of Federal Claims.The 1986 National Vaccine Injury Act created a no-fault system for han-dling such claims. Claimants must show that they experienced one of sev-eral enumerated adverse effects shortly after vaccination. The burden ofproof is the same as in civil litigation-more likely than not. Compensationcovers medical and legal expenses, loss of future earning capacity, and upto $250,000 for pain and suffering. There is also a death benefit of up to$250,000. Legal expenses may be compensated as well. The program isfunded by an excise tax on every purchased dose of covered vaccine.24
22. David C. Classen et al., "Global Trigger Tool" Shows That Adverse Events In Hospitals MayBe Ten Times Greater Than Previously Measured, 30 HEALTH AFF. 581, 586 (2011).
23. Ronen Avraham, Private and Competitive Regulation of Medicine, 6 THE ECONOMISTS'VOICE 2,3-4 (2009), available at http://www.bepress.com/ev/vol6/iss8/art2.
24. See Stephen D. Sugarman, Cases in Vaccine Court-Legal Battles over Vaccines and Autism,357 NEw ENGL. J. MED. 1275, 1276 (2007).
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C. Limitations on Liability/Contracting out ofLiability
As noted previously, many states cap liability exposure for either non-economic or total damages. Table 2 contains a list of these states, and out-lines the details of the applicable caps. As Table 2 reflects, there is consid-erable variation in the design of these caps. We recently published a paperestimating the effect of each of these caps using a common set of cases, andfound extraordinary variation in the likely impact. 25 Total damages capshad the largest impact, other design details (e.g., the level of the cap, andwhether it scaled based on the number of defendants) mattered as well.
TABLE 2. STATE DAMAGES CAPS
STATE CAP TYPE CAP LEVEL
Louisiana Total $500,000 plus future medical expenses
New Mexico Total $600,000 plus future medical expenses
Colorado Total, non-economic $1 million total; $300,000 non-economic
Indiana Total $1.25 million
Massachusetts Total (hospitals); non- $20,000 total (non-profit hospitals);
West Virginia* Non-economic $250,000, except $500,000 in death cases
Oklahoma* Non-economic $300,000
Texas Non-economic $250,000-$750,000, depending on number
and type of defendants
Nevada Non-economic $350,000
Ohio Non-economic Greater of $250,000 or three times economic
damages, up to $500,000
Hawaii Non-economic $375,000
Georgia Non-economic $350,000-$1.05 million, depending on num-
ber and type of defendants
South Carolina Non-economic $350,000-$1.05 million, depending on num-
25. David A. Hyman et al., Estimating the Effect of Damage Caps in Medical Malpractice Cases:Evidence from Texas, I J. LEGAL ANALYSIS 355, 405-06 (2009).
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ber and type of defendants
Alaska Non-economic $400,000
Utah Non-economic $409,000
Illinois Non-economic pitals
Mississippi Non-economic $500,000
North Dakota Non-economic $500,000
South Dakota Non-economic $500,000
Maryland* Non-economic $650,000
Missouri Non-economic $350,000
Florida Non-economic $500,000, except $1 million in death cases
Michigan* Non-economic $641,000
Wisconsin Non-economic $750,000*Adjusted for inflation.Source: See David A. Hyman et al., Estimating the Effect of Damage Caps in Medical Mal-practice Cases: Evidence from Texas, I J. LEGAL ANALYSIS 355 (2009).
There has been considerable academic interest in contracting out of li-ability. Courts have proven considerably less enthusiastic about such con-tracts, striking them down on various grounds. However, many states allowcontracting into arbitration, or some other form of alternative dispute reso-lution, as long as certain procedural protections are provided.
D. Immunity from Liability
Federal law eliminates liability for service providers who serve asvolunteers in nonprofit institutions, including but not limited to free clinics,as long as the harm was not caused by willful or criminal misconduct, grossnegligence, reckless misconduct, or a conscious, flagrant indifference to therights or safety of the individual harmed by the volunteer. Historically,many states provided for absolute immunity of nonprofit hospitals ("chari-table immunity"). Charitable immunity has been almost entirely abrogated,although Massachusetts retains a very low cap on damages in cases involv-ing nonprofit hospitals.
Federal law also exempts doctors and nurses who treat military per-sonnel at hospitals run by the Veterans Administration. Injured patients canreceive compensations from the hospitals, however.
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II. EMPIRICAL DATA ON MEDICAL ERRORS/ADVERSE EVENTS ANDMALPRACTICE LITIGATION
The empirical literature on medical errors/adverse events and malprac-tice litigation is vast. We address each issue in turn.
A. How Common Are Medical Errors and Adverse Events?
In 2001, the Institute of Medicine made front-page news by estimatingthat medical errors kill 44,000 to 98,000 hospitalized patients annually andinjure many more. 26 Recent studies put the number of deaths much high-er.27 One source, which studied Medicare patients treated in hospitals from2000-2002, estimated that almost 195,000 deaths each year "were poten-tially attributable to . . . patient safety incident[s]." 28 Depending on thesource, medical error is the eighth-, sixth-, or third-leading cause of deathin the U.S.29
Fatal injuries are only the tip of the adverse event/medical error ice-berg, since over a million people are injured by medical treatments annual-ly in the U.S. One study concluded that medical errors and qualityproblems in outpatient care resulted in "116 million extra physician visits,77 million extra prescriptions, 17 million emergency department visits, 8million hospitalizations, 3 million long-term admissions [and] 199,000additional deaths." 30 1.7 million hospitalized patients acquire infections,many of which are preventable, each year. Researchers estimate that ap-proximately 51 million prescriptions filled nationwide contained some typeof error, including 3 million mistakes that were potentially harmful. Ad-verse drug events (ADEs) are estimated to result in more than 770,000injuries and deaths each year. A study by the HHS Inspector General con-cluded that 13.5 percent of hospitalized Medicare beneficiaries experiencedadverse events during their hospital stays, with 44 percent of these events
26. INST. OF MEDICINE, To ERR Is HUMAN: BUILDING A SAFER HEALTH SYSTEM 31 (Linda T.Kohn et al. eds., 2000).
27. See, e.g., Classen et al., supra note 22, at 586; HEALTHGRADES, PATIENT SAFETY INAMERICAN HOSPITALS 1 (2004) (180,000 deaths at least partly attributable to health care), available athttp://www.healthgrades.com/media/english/pdflHG PatientSafety StudyFinal.pdf.
28. Id.
29. David A. Hyman & Charles Silver, The Poor State of Health Care Quality in the U.S.: IsMalpractice Liability Part of the Problem or Part of the Solution?, 90 CORNELL L. REv. 893, 901(2005).
30. Barbara Starfield, Is US Health Really the Best in the World?, 284 JAMA 483, 484 (2000).
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"clearly or likely preventable." 31 The OIG estimated that these adverseevents cost the Medicare program roughly $4.4 billion in 2008.
Articles published in a 2011 theme issue of Health Affairs provide acomprehensive portrait of medical injuries and their associated costs. Onestudy finds that a commonly used approach for identifying mistakes cap-tures only one-tenth of the serious adverse events that occurred in hospi-tals.32 Using a new method, the Global Trigger Tool developed by the In-Institute for Healthcare Improvement, the authors found that adverse eventsoccurred in a shocking 33.2 percent of hospital admissions. 33 A secondstudy, which relied on claims data, found that medical errors generate over$17 billion in direct medical costs. 34 A third study attempted to quantify thetotal social cost of medical errors based on the amounts people are willingto pay to avoid risks to their health. It found that medical errors, whichaccount for 187,000 deaths in hospitals and 6.1 million injuries, entail anannual social cost ranging from $393 billion to $958 billion.35
No matter how one slices the data, or where one looks, the evidence isclear that medical errors and adverse events are distressingly common inthe U.S. Some of these incidents are attributable to incompe-tence/inattention by an individual named physician, but many more are theresult of systems-level failings, whose frequency is elevated because of thefragmented nature of the U.S. health care system.
B. Malpractice Litigation
The malpractice system deals with medical errors/adverse events afterthey occur-although it is supposed to create an ex ante incentive to avoidsuch outcomes. There are many excellent literature reviews of the perfor-mance of the medical malpractice system, including several recent book-length treatments. 36 We focus here on the frequency of claiming; compen-
31. DEP'T. OF HEALTH & HUMAN SERVS., ADVERSE EVENTS IN HOSPITALS: NATIONALINCIDENCE AMONG MEDICARE BENEFICIARIES 15, 22 (2010), available athttp://oig.hhs.gov/oei/reports/oei-06-09-00090.pdf
32. Classen et al., supra note 22, at 586.33. Cheryl Clark, I in 3 Hospitalized Patients Suffers an Adverse Event, HEALTHLEADERS MEDIA
(Apr. 7, 2011), available at littp://www.healthleadersmedia.com/print/OUA-264653/1-in-3-Hospitalized-Patients-Suffers-an-Adverse-Event.
34. Jill Van Den Bos et al., The $17.1 Billion Problem: The Annual Cost Of Measurable MedicalErrors, 30 HEALTH AFF. 596, 602 (2011).
35. John C. Goodman et al., The Social Cost Of Adverse Medical Events, And What We Can DoAbout It, 30 HEALTH AFF. 590, 591, 593 (2011).
36. See generally TOM BAKER, THE MEDICAL MALPRACTICE MYTH (2005); see also FRANK A.SLOAN & LINDSEY M. CHEPKE, MEDICAL MALPRACTICE (2008).
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sation patterns (including the efficiency with which the liability systemsorts cases); and time trends in claiming and payouts.
1. Claiming Frequency (relative to rate of medical error/adverseevents)
Although the conventional wisdom is that Americans are exceptional-ly litigious, there is evidence that "Americans are no more innately lawsuitprone than the Japanese, the supposed saints of non-litigiousness." 37 Stud-ies of patients injured by medical malpractice indicate that "the great ma-jority of patients who sustain a medical injury as a result of negligence donot sue." 38 One researcher estimates that ten to twenty claims are assertedfor every 100 malpractice-related injuries. 39 Rather than show that Ameri-cans sue too often, "the medical setting has provided the strongest evidencethat the real tort crisis may consist in too few claims." 40
The first major study, which focused on patients hospitalized in Cali-fornia in 1974, estimated that negligent injuries exceeded malpracticeclaims by a factor of ten.41 Later studies, which focused on patients hospi-talized in New York and Colorado/Utah, found ratios of negligent injuries
37. Thomas F. Burke, LAWYERS, LAWSUITS, AND LEGAL RIGHTS: THE BATTLE OVER LITIGATIONIN AMERICAN SOCIETY 3 (2002).
38. Studdert et al., supra note 8, at 2025.39. Michael J. Saks, Medical Malpractice . .. By the Numbers, in LITIGATING MEDICAL
MALPRACTICE CLAIMS 399,401 (ALI-ABA, 2008).40. PAUL C. WElLER ET AL., A MEASURE OF MALPRACTICE: MEDICAL INJURY, MALPRACTICE
LITIGATION, AND PATIENT COMPENSATION 62 (1993) (reporting results of an extensive study of mal-practice in New York hospitals); see also Lori B. Andrews, Studying Medical Error in Situ: Implica-tions for Malpractice Law and Policy, 54 DEPAUL L. REV. 357, 370 (2005).
41. Don Harper Mills, Medical Insurance Feasibility Study-A Technical Summary, 128 WEST. J.MED. 360, 362-64 (1978); see also CALIFORNIA MED. Ass'N & CALIFORNIA HoSP. ASS'N, REPORT ONTHE MEDICAL INSURANCE FEASIBILITY STUDY (Don H. Mills ed., 1977); PATRICIA M. DANZON,MEDICAL MALPRACTICE: THEORY, EVIDENCE AND PUBLIC POLICY 66 (1985).
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to lawsuits roughly in the range of 5-7:1.42 Other sources also find thatinjuries greatly outnumber lawsuits.43
Looking outside of peer-reviewed journals, one finds ample evidencethat the frequency of errors greatly exceeds the number of claims. At thenational level, in 2000 there were roughly 87,000 medical malpractice law-suits filed-but that figure is less than the IOM's upper-end estimate of amodest subset of medical errors (i.e., those that result in death).44 At thestate level, in 2009, a Florida agency received reports of 4,137 injury inci-dents from medical facilities but the number of new malpractice claims wasonly 855.45 The same pattern is replicated in earlier years.46 Finally, a studyof 1,047 patients at a Chicago hospital found that although 17.7 percentexperienced "one or more errors with a serious injury," only thirty nine (3.7percent) requested their medical records, only five (<0.5 percent) sent let-ters of complaint, and only thirteen (1.2 percent) brought a claim. 47
2. Compensation Patterns and Time Trends
Empirical studies of those who initiate malpractice claims show thatinjuries tend to be severe, that the size of payouts correlates with injuryseverity (other than a "death-discount"), that patients are under-compensated, and that the patients who suffer the worst injuries recover the
42. On New York, see PAUL C. WEILER, MEDICAL MALPRACTICE ON TRIAL 12 (1991); WElLER ETAL., supra note 40; Troyen A. Brennan et al., Incidence of Adverse Events and Negligence in Hospital-ized Patients. Results of the Harvard Medical Practice Study 1, 324 NEw. ENG. J. MED. 370 (1991);Lucian L. Leape et al., The Nature of Adverse Events in Hospitalized Patients. Results of the HarvardMedical Practice Study II, 324 NEw ENG. J. MED. 377 (1991); A. Russell Localio et al., Relation Be-tween Malpractice Claims and Adverse Events Due to Negligence. Results of the Harvard MedicalPractice Study III., 325 NEW ENG. J MED. 245 (1991). On Colorado and Utah, see David M. Studdert etal., Beyond Dead Reckoning: Measures of Medical Injury Burden, Malpractice Litigation, and Alterna-tive Compensation Models from Utah and Colorado, 33 IND. L. REv. 1643, 1664 (2000); Eric J. Thom-as et al., Costs of Medical Injuries in Utah and Colorado, 36 INQUIRY 255 (1999); Eric J. Thomas et al.,Incidence and Types ofAdverse Events and Negligent Care in Utah and Colorado, 38 MED. CARE 261(2000).
43. Frank A. Sloan & Chee Ruey Hsieh, Injury, Liability and the Decision to File a MedicalMalpractice Claim, 29 L. & SOC. REv. 413, 414 (1995); Lori B. Andrews et al., An Alternative Strategyfor Studying Adverse Events in Medical Care, 349 LANCET 309, 312 (1997).
44. NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS, STATISTICAL COMPILATION OFANNUAL STATEMENT INFORMATION FOR PROPERTY/CASUALTY INSURANCE COMPANIES (2001).
45. FLORIDA AGENCY FOR HEALTH CARE ADMINISTRATION, 2009 MALPRACTICE STATEWIDE(2009), available athttp://www.fdhc.state.fl.us/SCHS/risk/documents/2009/2009MalpracticeStatewide.pdf
46. FLORIDA AGENCY FOR HEALTH CARE ADMINISTRATION, REPORTED MALPRACTICE CLAIMSSTATEWIDE COMPARED TO REPORTED ADVERSE INCIDENTS 2006 (2006), available athttp://www.fdhc.state.fl.us/SCHS/risk/documents/2006RepMalpClaimsState-WideComptoAnnualReplncidents.pdf.
47. Andrews, supra note 40, at 370; see also Andrews et al., supra note 43, at 311-12.
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smallest portions of their losses. 48 Comparing plaintiffs' economic losses-mainly, their past and future medical costs and their lost wages or expectedincome-to the amounts they received, one study found that malpracticevictims "tended to be under-compensated, and [that] the fraction of lossrecovered tended to be less for the most severe injuries and for deaths, inparticular for infants." 49
Injury severity is often ranked on a 9-level scale developed by the Na-tional Association of Insurance Commissioners (NAIC). The lowest rank-ings, 1-4, are for less serious injuries from which people usually recover,such as bums, infections, scars, and emotional harms. Levels 5-8 are forpermanent injuries, which range from minor (loss of fingers or other non-disabling injuries) to grave (quadriplegia, severe brain damage, or fatalprognosis). The highest ranking, 9, is used when the victim died.50
Malpractice actions tend to involve injuries with high NAIC scores.Table 3 compares the distribution of injuries in closed malpractice claimdatabases maintained by Florida, Illinois, and Missouri, and the payouts forinjuries with the specified NAIC scores. 51
TABLE 3. NUMBER AND MEDIAN PAYOUT OF MEDICAL MALPRACTICE
INSURANCE CLAIMS, BY SEVERITY OF INJURY, FROM 2000-2004NAICScale NAIC Description Florida Illinois Missouri
Number Median Num- Median Num MedianDuration Seventy Payout ber Payout ber Payout
Emo-to- 206 $25k 48 $26k 17 $33k1 tional
2 Slight 369 $16k 86 $5k 25 $16kTempo-
3 Minor 1,371 $50k 452 $25k 130 $64krary
4 Major 842 $79k 308 $48k 207 $210k
5 Minor 1,406 $108k 346 $83k 259 $220kPerma- Sig-
nent nifica 860 $250k 255 $210k 243 $400k6 nt I I
48. David A. Hyman & Charles Silver, Medical Malpractice Litigation and Tort Reform: It's theIncentives, Stupid, 59 VAND. L. REV. 1085, 1104-05 (2006).
49. Frank A. Sloan, Policy Implications, in SUING FOR MEDICAL MALPRACTICE 211, 220 (FrankA. Sloan et al. eds., 1993).
50. Whether the NAIC scale accurately tracks human assessments of injury severity is unclear.Injuries classified as minor or temporary on the NAIC's 9-level scale may seem serious when examinedclosely. See Allen J. Hart et al., Multidimensional Perceptions of Illness and Injury, 2 CURRENT RES.SOC. PSYCHOL. 30 (Sept. 11, 1997), available at http://www.uiowa.edu/-grpproc/crisp/crisp.2.4.htm.
51. THOMAS H. COHEN & KRISTEN A. HUGHES U.S. DEP'T OF JUSTICE BUREAU OF JUSTICESTATISTICS, MEDICAL MALPRACTICE INSURANCE CLAIMS IN SEVEN STATES, 2000-2004 6 (2007).
All Permanent Non-fatal 3,281 $210k 893k $193k 879 $420kInjuries
Total 8519 $133k 2,598 $107k 1945 $350k
Insurance payouts were adjusted for inflation using the consumer Price Index (CPI) in 2004 dol-lars. See Consumer Price Index, BUREAU OF LABOR STATISTICS, http://www.bls.gov/cpi/ (lastvisited Oct. 5, 2011).
Death cases account for roughly one-third of the claims in each state.In combination, death cases and cases with permanent non-fatal injuriesconstitute 66-80 percent of each dataset. The closed claim database assem-bled for the 2006 Harvard study had a similar injury distribution. 52
Table 3 shows that payouts increase as injuries become more severe.In all three states, the median payouts for claims with temporary injuriesare considerably smaller than those for permanent injuries. The relationshipis not linear within the permanent injury category. Injuries with lowerNAIC rankings sometimes have higher median payouts than more seriousinjuries. In all three states, injuries with NAIC rankings of 6-8 also gener-ate higher median payouts than death cases. A study of paid claims by chil-dren against emergency department physicians found the same pattern:payments increased with injury severity until the injury was death, at whichpoint payouts declined.53 These results are not surprising. The liabilitysystem compensates proven economic and non-economic damages, subjectto any caps the state may impose. Injury severity and damages do not al-ways correlate. For example, death is at the high end of severity, but not ofdamages. Injuries with long-term consequences, such as ongoing needs forhealth care services, entail higher costs and generate higher payouts.
Studies of tried malpractice cases turn up the same patterns: seriousinjuries predominate and verdicts generally track injury severity. Using asample of medical malpractice trials drawn from large counties nationwide,the Bureau of Justice Statistics found that 90 percent of medical malprac-
52. Studdert et al., supra note 8, at 2026 ("Eighty percent of claims involved injuries that causedsignificant or major disability (39 percent and 15 percent, respectively) or death (26 percent).").
53. Steven M. Selbst et al., Epidemiology and Etiology of Malpractice Lawsuits Involving Chil-dren in US Emergency Departments and Urgent Care Centers, 21 PEDIATRIC EMERGENCY CARE 165,165-69 (2005).
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tice trials involved plaintiffs who claimed malpractice had caused death orpermanent injury.54 The BJS also quantified how injury severity affecteddamages awards: "Median award amounts for medical malpractice trialsarising from death claims ($837k) and permanent injuries ($412k) werehigher than the median awards for medical malpractice trials that stemmedfrom temporary injuries ($77k)." 55 "[N]o patient with a temporary injuryreceived an award exceeding $1 million from a jury." 56
A study of California jury verdicts with large non-economic awardsalso reported that serious injuries predominated and that verdicts variedwith injury severity: "[I]n general, plaintiffs' injuries were severe: Approx-imately half resulted in death, grave injury, or major injury. No claimsinvolved emotional or insignificant injury exclusively, and only 3 percentinvolved temporary minor injury."57 Non-economic damages and thechance of a multi-million dollar verdict correlated strongly with injuryseverity.
How are payouts changing over time? One often hears that paymentson malpractice claims have skyrocketed. This assertion is sometimes sup-ported by unrepresentative anecdotes or by industry-supported studies thatuse unpublished data and that fail to adjust for inflation or changes in themix of injuries. Better studies find that payments are stable or declining.For example, the Missouri Department of Insurance examined 6,694 mal-practice claims that closed with payments from 1990-2001. Using a timeseries regression model that controlled for health care inflation, real wages,and injury severity, the model showed that Missouri's liability system be-came stingier over time. "Without increases in health care costs and aver-age wages, and if injury severities remained constant, average paymentswould have decreased fairly significantly during the 1990s."58 A subse-quent study of claims closed 1990-2006 revealed that claim frequency was
54. COHEN, supra note 9; THOMAS H. COHEN, U.S. DEP'T OF JUSTICE, NCJ NO. 206240, TORTTRIALS AND VERDICTS IN LARGE COUNTIES, 2001 5 (2004). The BJS data includes separate variables
for permanence of injury and seriousness of injury. See Catherine M. Sharkey, Unintended Conse-quences of Medical Malpractice Damages Caps, 80 N.Y.U. L. REV. 391, 505 n.456 (2005).
55. COHEN, supra note 10, at 2.56. Id.57. David M. Studdert et al., Are Damages Caps Regressive? A Study of Malpractice Jury Ver-
dicts in California, 23 HEALTH AFF. 54, 57 (2004).58. MISSOURI DEPARTMENT OF INSURANCE, MEDICAL MALPRACTICE INSURANCE IN MISSOURI:
THE CURRENT DIFFICULTIES IN PERSPECTIVE 18 (2003), available at
also stable or declining.59 The study did not control for increases in thevolume of health care services delivered--even though from 1991-2004,total health care spending almost doubled.
A study of Florida closed claims found that claim frequency held levelfrom 1990-1997, averaging about 2,600 claims per year.60 Paid claims,however, grew in number from 1990-2003, roughly in line with Florida'srising population but more slowly than Florida's supply of physicians. Paidclaims per 100 doctors fell from 3.98 in 1990 to 3.33 in 2002; mean andmedian payments for claims with a positive payout increased substantially.The number of $1 million payments also increased. The authors attributedthe increase in payment size to a significant increase in the severity of theinjuries, and to larger awards within injury severity categories, possiblydriven by the growing cost of health care.
Another team of authors evaluated trends in claims and payments bydrawing on reports of malpractice settlements filed with the National Prac-titioner Databank (NPDB) between 1991 and 2003.61 Their sample con-tained 184,506 reports concerning physicians in all fifty states. They foundthat the frequency of paid claims was stable. The number of payments per100k persons fell slightly, from 5.2 to 5.0. Real payout increased 52 per-cent, an average of 4 percent per year. Most of the growth was concentratedin claims with payments below the top 10 percent of the distribution.
Another set of authors studied payments on malpractice claims involv-ing urologists in New York State. 62 They examined 469 claims closed from1985-2004. The number of files averaged twenty-two per year and showedno time trend, but the inflation-adjusted average indemnity payment in-creased by 191 percent over the period they studied. Because the sampleincluded only claims against urologists practicing in New York State, itseems unlikely that changes in the case mix account for the increase. How-ever, results controlling for case characteristics were not reported.
Finally, another team of authors calculated physician malpractice lia-bility per $lk in health care expenditures (measured two ways), andshowed that the ratio changed little over time. The stability of the ratio led
59. MISSOURI DEPARTMENT OF INSURANCE, FINANCIAL INSTITUTIONS, AND PROFESSIONALREGISTRATION, MEDICAL PROFESSIONAL LIABILITY INSURANCE CLAIM REPORT (2006), available athttp://www.insurance.mo.gov/industry/forms/375-0304.pdf.
60. Neil Vidmar et al, Uncovering the "Invisible" Profile of Medical Malpractice Litigation:Insights from Florida, 54 DEPAUL L. REV. 315, 332, 336, 348 (2005).
61. Amitabh Chandra et al., The Growth of Physician Medical Malpractice Payments: Evidencefrom the National Practitioner Data Bank, HEALTH AFF. W5-240, 243 (2005) (web exclusive) availa-ble at http://content.healthaffairs.org/content/early/2005/05/3 1/hlthaff.w5.240.citation.
62. Michael Perrotti et al., Medical Malpractice in Urology, 1985 to 2004: 469 Consecutive CasesClosed with Indemnity Payment, 176 J. UROLOGY 2154, 54-57 (2006).
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them to conclude that "rising medical costs, which contribute to the size ofcompensatory awards, may explain a sizable portion of payment growth,consistent with other findings." 63
What of jury verdicts? Although one often hears that jury verdictshave skyrocketed and vary irrationally, "[s]cholarly work on trends in juryverdict awards ... generally finds little support for the more pessimisticview of runaway juries and increasingly generous awards."M The researchis well known and has been summarized many times. 65 We focus on themost recent studies.
In 2004, the Institute for Civil Justice at RAND released an impressivestudy of jury verdicts in tort cases. 66 The authors compiled a database ofjury verdicts covering a span of forty years (1960-1999) from state courtsin San Francisco County, California and Cook County, Illinois. Theirsources were jury verdict reporters in both states. The dataset included "allmedical malpractice, other professional malpractice, product liability, au-tomobile, common carrier, and premises liability verdicts, as well as othertort cases such as civil rights cases and intentional torts." 67 Looking at onlytrials with verdicts for plaintiffs, the RAND study found a substantial in-crease in the real average award and a smaller increase in the real medianaward. However, "case characteristics, claimed nonmedical economic loss-es, and claimed medical losses account[ed] for essentially all the observedgrowth in average tort awards in San Francisco County and Cook Countyover this time period." 68
This study did not distinguish verdicts from payments. Yet, when ju-rors award plaintiffs large amounts of money, defendants rarely pay the fullamount. Verdicts are often adjusted downwards because of judicial remit-titur, private pre-judgment contracts between the parties (called "high/low
63. Chandra et al., supra note 61, at 247.
64. Seth A. Seabury et al., Forty Years of Civil Jury Verdicts, I J. OF EMPIRICAL LEG. STUD. 1, 2
(2004); see also Philip G. Peters Jr., Health Courts, 88 B.U. L. Rev. 227, 38-41 (2008).
65. The seminal writings on jury verdicts in malpractice cases include publications by Neil
Vidmar, Stephen Daniels, Joanne Martin, and Thomas Metzloff. NEIL VIDMAR, MEDICALMALPRACTICE AND THE AMERICAN JURY: CONFRONTING THE MYTHS ABOUT JURY INCOMPETENCE,DEEP POCKETS, AND OUTRAGEOUS DAMAGE AWARDS (1995); Neil Vidmar, Empirical Evidence on the
Deep Pockets Hypothesis: Jury Awards for Pain and Suffering in Medical Malpractice Cases, 43 DUKEL.J. 217, 254-55 (1993); Neil Vidmar, Felicia Gross & Mary Rose, Jury Awards for Medical Malprac-
tice and Post-verdict Adjustments of Those Awards, 48 DEPAUL L. REV. 265, 280, 298 (1998); see also
STEPHEN DANIELS & JOANNE MARTIN, CIVIL JURIES AND THE POLITICS OF REFORM (1995); Thomas B.
Metzloff, Resolving Malpractice Disputes: Imaging the Jury's Shadow, 54 LAW & CONTEMP. PROBS.43, 74-75, 83 n.126 (1991). For a recent review, see generally Shari Seidman Diamond, Beyond Fanta-
sy and Nightmare: A Portrait ofthe Jury, 54 BUFF. L. REV. 717 (2006).66. Seabury et al., supra note 64, at 2.
67. Id. at 4.68. Id. at 20.
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agreements," which may sometimes increase payments as well), as part ofsettlement negotiations to avoid an appeal, or simply because defendantshave limited insurance, and it isn't worth pursuing "blood money." Asverdict size increases, downward post-verdict adjustments become bothmore likely and bigger. The first studies comparing verdicts and paymentsappeared in the 1990s. 69 These studies found that large verdicts were re-duced substantially, with defendants often paying but a small fraction ofjury awards. More recently, Vidmar has produced single-state reports cov-ering Florida, Illinois, and Pennsylvania. 70 These reports find that defend-ants usually paid much less than juries awarded when verdicts exceeded $1million.
Research on closed malpractice claims in Texas also finds that plain-tiffs discount verdicts significantly when settling, and that plaintiffs withthe largest verdicts incur the largest reductions, in both percentage termsand absolute dollars.7 ' Seventy-five percent of plaintiffs received payoutsbelow their verdicts (adjusted for pre- and post-judgment interest). Themean (median) discount per case was 29 percent (19 percent), and the ag-gregate reduction for all plaintiffs who won at trial was 56 percent.
3. Impact of Caps on Non-Economic Damages
A sizeable empirical literature studies the impact of non-economiccaps on verdicts, claim frequency, malpractice insurance payouts, malprac-tice premiums, defensive medicine, physician supply, overall health insur-ance premiums, mortality rates, and more. Some studies are peer reviewed,but many findings appear in government reports, non-peer reviewed jour-nals, and policy papers. Recent reviews of this literature are easily found.72
This discussion therefore focuses on the small number of peer-reviewedstudies of caps of all types that is based on case- or claim-level data. These
69. Vidmar, Gross & Rose, supra note 65, at 280, 298.70. Neil Vidmar et al., Million Dollar Medical Malpractice Cases in Florida: Post- Verdict and
Pre-Suit Settlements, 59 VAND. L. REV. 1343 (2006); NEIL VIDMAR, MEDICAL MALPRACTICELITIGATION IN PENNSYLVANIA (2006), available athttp://www.pabar.org/pdf/PBAMedMalweb061406.pdf; NEIL VIDMAR, MEDICAL MALPRACTICE ANDTHE TORT SYSTEM IN ILLINOIS (2005), available at webarchives.isba.org/medicalmalpracticestudy.pdf
71. David A. Hyman et al., Estimating The Effect of Damages Caps in Medical MalpracticeCases: Evidence from Texas, I J. LEGAL ANALYSIS 355, 384-85 (2009).
72. See Leonard J. Nelson III et al., Medical Malpractice Reform in Three Southern States, J. OFHEALTH & BIOMEDICAL L. 69 (2008); Leonard J. Nelson III et al., Damages Caps in Medical Malprac-tice Cases, 85 MILBANK Q. 259 (2007); John J. Donohue III & Daniel E. Ho, The Impact of DamageCaps on Malpractice Claims: Randomization Inference with Difference-in-Differences, 4 J. EMPIRICALLEGAL STUD. 69 (2007); MICHELLE M. MELLO, MEDICAL MALPRACTICE: IMPACT OF THE CRISIS ANDEFFECT OF STATE TORT REFORMS (2006), available at http://rwjforg/pr/product.jsp?id=15168; Geof-frey Christopher Rapp, Doctors, Duties, Death and Data: A Critical Review of the Empirical Literatureon Medical Malpractice and Tort Reform, 26 N. ILL. U. L. REV. 439 (2006).
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studies find that caps have the effect one would predict: they cut deeplyinto verdicts with sizeable awards of non-economic damages.
California's Medical Injury Compensation Reform Act (MICRA) stat-ute capped non-economic damages at $250,000 in 1975. However, becausethe allowed amount is not adjusted for inflation, the MICRA cap is muchless generous now than when it was imposed. Two studies have examinedthe impact of the MICRA cap on verdicts. Using the California Jury Ver-dicts Weekly, one set of authors gathered data on 152 malpractice casestried from 1985 to 2002, in which the jury's award of non-economic dam-ages was both ascertainable and in excess of the cap.73 Across the entiresample, the non-econ cap reduced the aggregated total verdict by 34 per-cent, from $390 million to $253 million. Considering only the portion ofverdicts directed to non-economic damages, the aggregate reduction was 73percent. Non-economic damage awards correlated positively with injuryseverity as measured on the NAIC scale, except when the injury was death.For this reason, the MICRA cap hit plaintiffs with severe injuries especiallyhard: "The mean reductions for grave injury were seven times larger thanthose for minor injury; the differences in medians for these two levels ofinjury differed by a factor of three." 74 Plaintiffs with pain or disfigurementexperienced the largest reductions in their verdicts. As the authors noted,"because verdicts for injuries such as deafness, numbness, disfigurement,and chronic pain attracted relatively small economic damages awards, im-position of the cap eliminated most of the award" in cases with these inju-ries. 75 No evidence indicated that the MICRA cap affected female orelderly plaintiffs more than others.
Another study examined 257 California jury verdicts decided from1995-1999, also using California Jury Verdicts Weekly as its data source. 76
It found that the non-economic cap applied in 45 percent of cases and re-duced the aggregate jury award 30 percent, from $421 million to $295 mil-lion. The cap affected death cases more often than cases with non-fatalinjuries (58 percent versus 41 percent):
The median reduction in capped-death cases was $459,000, comparedwith $286,000 for injury cases, and the median percentage reduction intotal awards when the cap was imposed was 49 percent, compared with28 percent in injury cases. The reason for these deep percentage cuts intotal award size for death cases is that, on average, death cases receive
73. See Studdert et al., supra note 57, at 54-67.74. Id. at 60.75. Id. at 62.76. NICHOLAS M. PACE ET AL., CAPPING NON-ECONOMIC AWARDS IN MEDICAL MALPRACTICE
TRIALS: CALIFORNIA JURY VERDICTS UNDER MICRA xix (2004), available athttp://rand.org/pubs/monographs/MG234/.
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relatively low awards for economic damages compared with the awardsoriginally granted by juries for non-economic damages. 77
This study also found that the MICRA cap affected some types of plaintiffsmore than others. The MICRA cap reduced verdicts in 71 percent of caseswith verdicts in favor of infants, and the median reduction for this groupwas $1.5 million, "far more than the median for individual plaintiffs withinjury claims ($268,000)."78 As a percentage of total awards, however,infants fared better than others-22 percent versus 32 percent for all plain-tiffs-because infants' economic awards were relatively large. Awardswere reduced for 67 percent of plaintiffs aged sixty-five years or older, butthe plaintiffs had the smallest median dollar reduction. Females sufferedlarger median reductions than males-34 percent versus 25 percent.
Another study focused on a nationwide sample of 322 jury verdictcases decided from 1984-2005 involving urologists that appeared in an on-line database. 79 Jurors found for the defendant in slightly over half the cas-es, a far higher plaintiff success rate than is found in malpractice trialsmore generally. The authors adjusted the gross verdicts to reflect the degreeof negligence attributed to the urologist so as to take account of the influ-ence of comparative negligence statutes on defendants' financial responsi-bility. The states covered by the sample included some that enacted orrepealed caps during the period. The authors controlled for whether a capwas in effect when a trial occurred. The findings were mixed:
[s]tates with caps had lower median verdict or settlement amounts com-pared to states without caps ($350,000 vs $491,500), suggesting that lim-its on noneconomic damages may have had an impact. However, in the12 states that did and did not have caps during the study period the medi-an verdict or settlement during the time without limits on damages wasonly $150,000, suggesting that the implementation of caps did not de-crease median awards.80
The authors do not indicate whether they adjusted verdicts or settlementsfor inflation, and it appears that the numbers reported were based on juryverdicts-not on actual payments. (This is a significant weakness: asdscribed above and below, defendants and their insurers often pay plaintiffsmuch less than juries award.) Determining whether particular cases aresubject to a damages cap is difficult, because the effective date of the stat-
77. Id. at xxi.78. Id at xxiii.79. Michael H. Hsieh et. al., Medical Malpractice in American Urology: 22-Year National Review
of the Impact of Caps and Implications for Contemporary Practice, 179 J. UROLOGY 1944, 1944(2008).
80. Id. at 1945.
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ute is usually tied to filing date, and not the date a trial occurred. 81 Finally,the unusually high plaintiff win rate suggests that defense victories wereunder-reported, a problem that affects jury verdict reporters in general.
4. Accuracy of the Liability System
Health care providers and other critics of the tort system contend thatit allocates payments haphazardly-like a policeman handing out moretickets to those who comply with the traffic laws than to those who run redlights.82 However, the weight of the evidence suggests that the system dis-tinguishes between valid and invalid claims reasonably well, but is far fromperfect.83 Indeed, "over the past several years, a consensus has emergedamong academic observers that the medical malpractice system operates,overall, in a rational and predictable way. There is a clear connection be-tween the quality of the case, expressed in terms of likely liability, andcompensation." 84 At least in the U.S., the largest problem appears to be thefrequency with which the tort system denies compensation to patients withvalid claims.
One recent study assessed accuracy by obtaining insurer's assessmentsof care quality for malpractice claims filed in North Carolina courts afterthe underlying cases had been resolved. "Money was paid in 78% of casesthat were evaluated as having probable liability, in 73.7% of cases in whichliability was assessed as uncertain, and in 33.3% of cases in which liabilitywas viewed as unlikely."85 Concordance between the evaluations of theplaintiffs attorney and the defense attorney also correlated with the likeli-hood of payment.
81. See RONEN AVRAHAM, DATABASE OF STATE TORT REFORMS (2011), available athttp://ssrn.com/abstract-902711.
82. Troyen A. Brennan & Philip K. Howard, Heal the Law, Then Health Care, WASH. POST, Jan.25, 2004, at B07; William R. Brody, President, The Johns Hopkins University, Is the Legal SystemKilling Healthcare?, address at the Manhattan Institute for Policy Research Luncheon (Feb. 25, 2003),available at web.jhu.edulold/president/speeches/2003/legalsys.html; William R. Brody, DispellingMalpractice Myths, WASH. PoST, Nov. 14, 2004, at B07; Florida Stop Lawsuit Abuse, Watchdog SaysFloridians are Fed Up with Lawsuit Abuse as South Florida Courts again Top List of "Judicial Hell-holes" (Dec. 17, 2008), http://www.floridastoplawsuitabuse.com/newsroom_121608.html; PHYSICIANINSURERS ASSOCIATION OF AMERICA, http://www.piaa.us/ (last visited March 13, 2009); Darien Cohenet al., Malpractice Claims on Emergency Physicians: Time and Money, J. EMERGENCY MED. (Epubahead of print, 2008).
83. See BAKER, supra note 36; Hyman & Silver, supra note 48, at 1087; SLOAN & CHEPKE, supranote 36.
84. Catherine T. Harris et al., Does Being a Repeat Player Make a Difference? The Impact ofAttorney Experience and Case-Picking on the Outcome of Medical Malpractice Lawsuits, 8 YALE J.HEALTH POL'Y L. & ETHICS 253, 261 (2008).
85. Id. at 272.
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Two studies examined the quality of care and the resolutions of forty-two closed malpractice claims against neurologists, all of which were cov-ered by the same insurer.86 The first study focused on "whether the neurol-ogist committed harmful, preventable errors"; the second focused onwhether errors occurred that were harmful and negligent. The neurologist-authors reviewed all the information in the insurer's files to make thesedeterminations. The authors then compared their assessments of the neuro-logical services to the outcome, framed as whether a payment on behalf ofthe neurologist was made. Table 4 displays the results of both studies.
Of the nineteen claims found to have harmful substandard care, only aminority (32 percent) closed with payments; the plaintiffs in the remainingcases received no compensation from the culpable neurologists. Accuracywas significantly better for claims with appropriate care. Of these twenty-three claims, 96 percent closed without payments on behalf of the treatingneurologists. As the authors summarized their findings, "a plaintiff waseight times more likely to receive payment if the defendant had renderedsubstandard care than if the defendant had not (32 percent vs. 4 percent)."87
In 2006, researchers affiliated with Harvard University School of Pub-lic Health studied the malpractice system's accuracy using a random sam-ple of 1,452 closed claim files from a geographically diverse group of fiveinsurance carriers.88 The files contained all materials available to the insur-ers, including litigation-related materials like expert witnesses' opinions,and were supplemented with medical records obtained from the insureds.The researchers then assigned physicians trained in the relevant specialty toreview the files. The reviewers determined whether an injury occurred,how severe it was, and whether a treatment error caused it. They alsogauged the strength of the evidence showing that an error occurred on a 6-
86. Lee D. Cranberg et al., Do the Claims Hold Up? A Study of Medical Negligence ClaimsAgainst Neurologists, 4 J. EMPIRICAL LEGAL STUD. 155, 155 (2007); Thomas H. Glick et al., Neuro-logic Patient Safety: An In-Depth Study of Malpractice Claims, 65 NEUROLOGY 1284, 1284 (2005).
87. Cranberg et al., supra note 86, at 160.88. Studdert et al., supra note 8, at 2025.
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level scale ranging from "virtually certain evidence" (6) to "little or noevidence" (1).
According to the reviewers, nearly all the claims in the sample in-volved treatment-related injuries. Ninety percent of the injuries were physi-cal, and most were severe. In 26 percent of the cases, the patient died. Thecorrelation between errors and payments was strong. The "right" result(error/payment or no error/no payment) occurred about 73 percent of thetime. Error claims predominated in the sample, accounting for 64 percentof all claims and 84 percent of all indemnity payments. The strength of theevidence of error mattered as well: "The probability of payment increasedmonotonically with reviewers' confidence that an error had occurred."89
The system's biggest failings were: (1) its tendency to withhold pay-ments from deserving claimants, (2) the time it took to resolve claims, and(3) the loading costs it entailed. For example, "[o]ne in six claims involvederrors and received no payment"-with false negatives (error/no payment)1.6 times more likely than false positives (no error/payment).
A follow-up study used multivariate regression to identify factors thatwere associated with false negatives and false positives.90 For false nega-tives (unpaid error claims), trials were the most important predictor. Forfalse positives (paid non-error claims), the best predictors were infant pa-tients and institutional defendants (e.g., hospitals). Clarity of evidence alsomattered. Both types of error were less common when insurers and review-ers were confident in their assessments of the quality of care.
5. Frivolous Lawsuits
Reform advocates have attacked the malpractice liability system onthe grounds that the way in which plaintiffs lawyers are compensated (i.e.,with fees contingent on recovery) encourages them to bring frivolous law-suits in the hopes of winning the "litigation lottery." These frivolous law-suits reportedly drive up health care costs and discourage health careproviders. 91 As we have observed elsewhere, the argument that frivolouslawsuits are common, or represent a viable business strategy for plaintiffs'attorneys, is problematic. Malpractice carriers know how to evaluate
89. Id. at 2028.90. David M. Studdert & Michelle M. Mello, When Tort Resolutions are "Wrong": Predictors of
Discordant Outcomes in Medical Malpractice Litigation, 36 J. LEGAL STUD. 547, 547 (2007).91. Warren Vieth, Bush Hammers Medical Malpractice Suits, L.A. TIMES, Jan. 6, 2005, at A17;
Peter Baker, Bush Campaigns to Curb Lawsuits: President Says Junk' Litigation is Driving Small-Town Doctors out of Business, WASH. POST, Jan. 6, 2005, at A06.
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claims, and they only pay claims they think have merit.92 Knowing this,plaintiff s lawyers have little incentive to take weak cases-and they quick-ly drop such cases once it becomes apparent they are weak.93 Nor can pa-tients sue successfully without a lawyer's help. In Texas, for example, few-fewer than 1 percent of paid malpractice claims involved pro se litigantswho filed complaints on their own.94
To be sure, most claims turn out to lack merit, if one judges solely bywhether compensation is paid. But, it follows neither that these claims werefrivolous nor that payment was properly denied. Since non-negligent treat-ment is the rule, even a small error rate in screening will result in a substan-tial number of cases that lack merit being initiated, and subsequentlydropped. Further, many cases involve judgment and "close calls." Thesefactors suggest we should be cautious in ascribing frivolity to the observedpatterns.
6. Cost of Medical Errors/Adverse Events
Estimates of the aggregate cost of medical errors and adverse eventsare impressively high, although there is inevitably some "squishiness" inthe estimates. In its 1999 report, the Institute of Medicine estimated thatmedical errors cost the U.S. between $17 and $29 billion per year.95 In2008, the Agency for Health Care Research and Quality estimated thatsurgical errors cost nearly $1.5 billion per year.96 In 2006, drug-relatederrors were estimated to cost as much as $3.5 billion per year.97 A 2008study by a health care consulting firm put the cost of all adverse events at$19.5 billion,98 while a 2003 study by AHRQ pegged the cost of avoidable
92. Ralph Peeples et al., The Process of Managing Medical Malpractice Cases: The Role ofStandard of Care, 37 WAKE FOREST L. REV. 877, 885 (2002); Catherine T. Harris et al., Who are ThoseGuys? An Empirical Examination of Medical Malpractice Plaintiffs' Attorneys, 58 SMU L. Rev. 225,245-47 (2005).
93. Henry S. Farber & Michelle J. White, Medical Malpractice: An Empirical Examination of theLitigation Process, 22 RAND J. ECONOMICS 199, 200 (1991); Herbert M. Kritzer, Contingency FeeLawyers as Gatekeepers in the Civil Justice System, 81 JUDICATURE 22, 22 (1997); Huycke & Huycke,supra note 19, at 797.
94. Silver & Hyman, supra note 18, at 377.95. INST. OF MEDICINE, supra note 26.96. U.S. DEP'T OF HEALTH & HUMAN SERVS., NEW AHRQ STUDY FINDS SURGICAL ERRORS
97. NAT'L ACADEMIES, MEDICATION ERRORS INJURE 1.5 MILLION PEOPLE AND COST BILLIONSOF DOLLARS ANNUALLY (July 20, 2006) (press release), available athttp://www8.nationalacademies.org/onpinews/newsitem.aspx?recordid= 11623.
98. JON SHREVE ET AL., THE ECONOMIC MEASUREMENT OF MEDICAL ERRORS 5 (2010).
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adverse events in the hospital at $4.6 billion per year.99 The aggregate so-cial cost of these medical errors has been estimated to range up to $958billion per year. 00
Who bears the cost of these medical errors and adverse events? Onestudy of inpatients in Colorado and Utah found that "[o]n average, hospi-tals externalized 78 percent of the costs of all injuries and 70 percent of thecosts of negligent injuries."' 0' An earlier study found that hospitals inter-nalized roughly two-thirds of the cost of negligent treatment, but that studyfocused only on the costs of inpatient treatment, and excluded other costs,such as lost earnings and non-economic damages.102
7. Cost of the Liability System
The direct costs of the malpractice liability system are widely estimat-ed to be on the order of $20-$30 billion per year. What about the indirectcosts (principally defensive medicine)? Tort reform advocates claim thatdefensive medicine costs $100-$300 billion per year, but empirical studiesput the cost much lower.
Kessler and McClellan performed the first rigorous studies of the im-pact of tort reforms on health care spending.103 Using longitudinal data onMedicare beneficiaries who received cardiac treatments in hospitals inthree years (1984, 1987, and 1990), they found that damages caps and otherreforms that limited liability directly reduced post-treatment medicalspending by 5-9 percent, without adverse health effects. Other tort reformsdid not produce statistically significant spending reductions. Kessler andMcClellan subsequently reanalyzed their data while controlling for man-aged care penetration, and found smaller but still significant results.104
In their original article, Kessler and McClellan observed that "if ourresults are generalizable to other medical expenditures outside the hospital,to other illnesses, and to younger patients, then direct [tort] reforms could
99. Chunliu Zhan & Marlene R. Miller, Excess Length of Stay, Charges, and Mortality Attributa-ble to Medical Injuries During Hospitalization, 290 JAMA 1868, 1872 (2003).
100. John C. Goodman et al., The Social Cost of Adverse Medical Events, and What We Can DoAbout It, 30 Health Aff. 490 (Apr. 2011).
101. Michelle M. Mello et al., Who Pays for Medical Errors? An Analysis of Adverse Event Costs,the Medical Liability System, and Incentives for Patient Safety Improvement, 4 J. EMPIRICAL LEGAL.STUD. 835, 850 (2007).
102. Chunliu Zhan et al., Medicare Payment for Selected Adverse Events: Building the BusinessCase for Investing in Patient Safety, 25 HEALTH AFF. 1386, 1390-1391 (2006).
103. Daniel P. Kessler & Mark B. McClellan, Do Doctors Practice Defensive Medicine?, Ill Q. J.ECON. 353, 353 (1996).
104. See Daniel P. Kessler & Mark B. McClellan, How Liability Law Affects Medical Productivity,21 J. HEALTH ECON. 931, 949 (2002).
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lead to expenditure reductions of well over $50 billion per year withoutserious adverse consequences for health outcomes."105 Tort reform advo-cates played up Kessler and McClellan's number and played down theirqualification. One stated flatly that nationwide tort reform would save"well over $50 billion a year."l 06 In 2002, the Department of Health &Human Services issued a report that relied on Kessler and McClellan, andconcluded that tort reform "would save $70-$126 billion in health carecosts per year."107
Recent studies have suggested the cost of defensive medicine is farlower. In 2004, the Congressional Budget Office reported that when it ap-plied Kessler and McClellan's methods to a broader range of medical con-ditions, "it found no evidence that restrictions on tort liability reducemedical spending." 08 A study by Sloan and Shadle that covered more con-ditions and a longer span of years also produced insignificant results.109 Arecent study's findings are summed up by its title: there are "low costs"associated with defensive medicine, and "small savings from tort re-form."110 Other studies have found stronger evidence of defensive medi-cine. One recent study found that health care spending was 3-4 percentlower in states that had adopted tort reform,' and another review put thecost of defensive medicine at $45.6 billion, while acknowledging the poorquality of the evidence supporting this figure.112
Using Medicare data, we are currently analyzing the relationship be-tween claim rates, tort reform, and health care spending in Texas. Our re-sults indicate that malpractice risk does not significantly affect health carespending."13
105. Kessler & McClellan, supra note 103, at 387-388.106. Peter Huber, Rx: Radical Lawyerectomy, Forbes, Jan. 27, 1997, at 112, available at
http://www.forbes.com/forbes/1997/0127/59021l2a.html.107. U.S. DEP'T OF HEALTH & HUMAN SERVS., ADDRESSING THE NEW HEALTH CARE CRISIS 11
(2003) available at http://aspe.hhs.gov/daltcp/reports/medliab.htm.108. CONG. BUDGET OFFICE, LIMITING TORT LIABILITY FOR MEDICAL MALPRACTICE 6 (2004)
available at http://www.cbo.gov/ftpdocs/49xx/doc4968/01-08-MedicalMalpractice.pdf.109. Frank A. Sloan & John H. Shadle, Is There Empirical Evidence for "Defensive Medicine": A
Reassessment, 28 J. HEALTH ECON. 481, 486 (2009).110. J. William Thomas, Erika C. Ziller & Deborah A. Thayer, Low Costs OfDefensive Medicine,
Small Savings From Tort Reform, 29 HEALTH AFF. 1578, 1578 (2010).111. Fred J. Hellinger & William E. Encinosa, The Impact of State Laws Limiting Malpractice
Damage Awards on Health Care Expenditures, 96 AM. J. PUB. HEALTH 1375, 1375 (2006).112. Michelle M. Mello, Amitabh Chandra, Atul A. Gawande & David M. Studdert, National Costs
Of The Medical Liability System, 29 HEALTH AFF. 1569, 1574 (2010).113. MYUNGHO M. PAIK ET AL., HOW DO THE ELDERLY FARE IN MEDICAL MALPRACTICE
LITIGATION, BEFORE AND AFTER TORT REFORM? EVIDENCE FROM TEXAS, 1988-2009 (2011), availa-ble at http://ssrn.comWe/abstract-1605331.
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III. ATTITUDES AND CONCERNS ABOUT THE LIABILITY AND
COMPENSATION SYSTEMS
In the United States, trial lawyers and the tort system are exceeding-ly unpopular. There is certainly plenty of room for improvement in the tortsystem, but the degree of unpopularity probably has something to do withthe existence of a determined, decades-long campaign framing the issuesaround depictions of greedy and predatory trial lawyers, frivolous lawsuits,and biased judges. The American Tort Reform Association serves as anumbrella organization, and annually designates several locations as "judi-cial hellholes."ll 4 The U.S. Chamber of Commerce has an Institute forLegal Reform that funds a wide range of initiatives and lobbies heavily fortort reform.115 The Manhattan Institute has a Center for Legal Policy thatissues periodic reports on such subjects as "Trial Lawyers, Inc."116 Multi-ple states have similar entities that focus on the specific issues within theirstate (e.g., the Illinois Lawsuit Abuse Watch).1 17 And there are a host ofsmaller organizations (e.g., Citizens Against Lawsuit Abuse, Stop LawsuitAbuse, and People for a FAIR Legal System). These groups have used awide array of strategies to get their message out, including lobbying, adver-tisements, starting their own newspapers, distributing plush toys at statefairs, and multiple other modes of communication. 118
Polling data indicates these efforts have been quite successful. A pollconducted in November 2010 by the U.S. Chamber of Commerce, foundthat 88 percent of those polled (1,000 voters who cast ballots in the 2010mid-term election) "believe[d] there [were] too many 'meritless' lawsuits,while eight out of ten want[ed] the next Congress to continue reforming thelegal system."ll 9 It is no accident that the Association of Trial Lawyers ofAmerica (ATLA) changed its name in 2006 to the American Associationfor Justice. A contemporaneous article stated "the switch was viewed as an
115. INST. FOR LEGAL REFORM, http://www.instituteforlegalreform.com/about-ilr.html (last visitedSept. 1, 2011).
116. ,MANHATTAN INST. FOR POLICY RESEARCH, About the Center for Legal Policy,http://www.manhattan-institute.org/html/clp.htm (last visited Sept. 1, 2011).
117. ILL. LAWSUIT ABUSE WATCH, http://www.illawsuitabusewatch.org/about.html (last visitedSept. 1, 2011).
118. Jeffrey H. Birnbaum, A Quiet Revolution In Business Lobbying, WASH. POST, Feb. 5, 2005, atA01, available at http://www.washingtonpost.com/wp-dyn/articles/A64725-2005Feb4.html; Jeffrey H.Birnbaum, Advocacy Groups Blur Media Lines, WASH POST, Dec. 6, 2004, at A01, available athttp://www.washingtonpost.com/wp-dyn/articles/A38184-2004Dec5.html.
119. INST. FOR LEGAL RESEARCH, NINE OUT OF TEN VOTERS SAY "MERITLESS" LAWSUITS ARE ASERIOUS PROBLEM, SUPPORT CONTINUED LEGAL REFORMS (Nov. 4, 2010) (press release), available athttp://www.instituteforlegalreform.com/component/ilr-media/30/pressrelease/2010/520.htm.
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acknowledgment that trial lawyers are unpopular and losing the publicrelations battle." 20
Plaintiffs' lawyers are exceedingly unpopular, and so is the tort sys-tem-and there are plenty of reasons for dissatisfaction with the perfor-mance of the tort system. Unfortunately, it does not follow that the reformsthat are enacted will actually address the known pathologies of the tortsystem. For several decades, the field of play has been frozen in a debateover the desirability of caps on non-economic damages-which are, at best,a partial solution to a relatively minor problem. Even if damages caps werea perfect solution to all the problems of the tort system (which even propo-nents do not claim), it appears that most of the states that are likely to adoptdamages caps have already done so.
IV. WHY Do THINGS LOOK THE WAY THEY Do?
As we have written previously, one can explain many of the featuresof the U.S. medical error/adverse event/malpractice landscape by focusingon the applicable incentives that result from the institutional choices im-bedded in the U.S. health care financing/delivery and litigation systems.121For example, injured patients rarely sue because some medical errors arehard to spot, and because most errors inflict harms that are small or tempo-rary. By contrast, those who file lawsuits are seriously injured, and theseverity skew appears to be increasing over time (as tort reform makescases involving less severe injuries nonviable). Given the costs and delaysof litigation, patients with lesser injuries are usually better off letting thematter drop ("lumping it"), complaining, changing providers, or seekingassistance from regulators.122
Financial need is also an important motivating factor for patients. Be-cause first-party health insurance generally covers treatment costs, the de-sire to sue is often weak. As noted previously, first-party insurance alsomakes litigation less profitable for claimants because first-party carriers areentitled to recoup the amounts they have advanced through subrogation.123
120. Debra C. Weiss, Acronym Soup Suit, A.B.A. J. (Nov. 30, 2007),http://www.abajournal.com/news/article/acronym soup suit aaj formerlyatlasuestheatla/.
121. Hyman & Silver, supra note 48.122. Marlynn L. May & Daniel B. Stengel, Who Sues Their Doctors? How Patients Handle Medi-
cal Grievances, 24 LAW & SOC'Y. REV. 105, 117 (1990).123. Deborah R. Hensler et al., COMPENSATION FOR ACCIDENTAL INJURIES IN THE UNITED STATES
17-18 (The Inst. For Civil Justice ed. 1991); William G. Johnson et al., The Economic Consequences ofMedical Injuries: Implications for a No-Fault Insurance Plan, 267 JAMA 2487, 2491 (1992); BAKER,supra note 36.
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V. WHAT HAVE WE LEARNED BY STUDYING TEXAS?
Over the past decade, along with several co-authors, we have used anenormous database of closed claims to assess the performance of the mal-practice liability system in Texas. In this section, we will highlight a selec-tion of our findings that that shed light on the issues discussed in thisarticle.
A. Who Decides Malpractice Cases?
Physicians hate and fear juries, and doubt their competence to decidecomplex malpractice cases. This is true even though many studies find thatphysicians win most malpractice trials124 and despite the fact that trials arecomparatively rare. Most malpractices cases are either dropped by plain-tiffs or resolved with voluntary payments before trial. Settlements occurredin 97.5 percent of the Texas malpractice claims that closed with paymentsfrom 1988-2002. Settlements also accounted for 95 percent of the totaldollars paid.125
B. Does it Matter How Much the Jury Awards in a MalpracticeCase?
Providers and their insurers often contend that jury awards are risingquickly and driving up costs. In Texas, we found no time trend in juryawards after adjusting for general inflation. 126 We also learned that theabsolute amount a jury awards a plaintiff matters a lot less than one mightthink because awards are routinely discounted in settlement negotiations. Inother words, defendants and their insurers usually pay much less than juriesaward. Over the dataset as a whole, they paid less than half the amount thatwas awarded (including pre-judgment interest).
As noted previously, awards are discounted for several reasons, in-cluding appellate reversals and reductions required by statutory damagescaps. But the biggest factor was that voluntary settlements occur in theshadow of providers' policy limits. If the policy limits are $500,000, itdoesn't matter whether the jury awards $1 million, $5 million, or $50 mil-lion. The plaintiff is likely to recover at most $500,000. The rest of theaward will be written off. In practical effect, policy limits cap recoveries.
124. See, e.g., COHEN, supra note 10, at 2 (reporting that the plaintiffs won only 27 percent ofmalpractice trials).
125. Black etal.,supra note 10, atX.126. Id. at 251.
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Because large jury verdicts are more likely to exceed providers' insur-ance limits, they are discounted the most substantially in settlement negoti-ations. The size of the discount, which we refer to as a "haircut," increasesin both percentage terms and absolute dollars as the size of the award rises.The plaintiffs who won the largest jury awards (and who presumably hadthe most severe injuries and the greatest needs) sacrificed the most whensettling their claims. In the small fraction of cases with payments exceedingthe primary policy limits, the payments usually come from insurers, notproviders. Providers have little to fear in the way of personal liability fromjury awards, at least in Texas medical malpractice cases.
C. How Much Coverage Do Physicians Have?
Because injured patients recover almost exclusively from providers'insurance, it is important to know how much insurance providers maintainand whether the size of their policies has changed over time. Texas doesnot regulate the amount of coverage doctors must obtain. Consequently,doctors may carry as much or as little insurance as they want.
The conventional wisdom is that providers carry policies with occur-rence and aggregate annual limits of $1 million and $3 million, respective-ly, but this is not true in Texas. Considering only providers with paidclaims-the most important group from the perspective of injured patientsand physicians-the median policy limit across all years was $500,000(nominal). Only 37 percent of providers with paid claims had insurancepolicies with per occurrence limits of $1 million or more (nominal). Thirty-two percent carried $200,000 or less (nominal) in coverage. Physicianswhose paid claims concerned the treatment of newborn infants carried lessinsurance than others, but had a higher risk of making an out-of-pocketpayment.
The real amount of insurance available to cover patients' losses alsodeclined dramatically over time. From 1988-1999, the policy years in thedataset for which the collection of claims was likely to be complete, thereal mean and median limits for physicians fell by about 30 percent. Thedecline would be even larger if discounted to reflect the real increase inmedical costs. Texas appears to be rapidly reaching a point at which under-compensation of claimants will be unavoidable because doctors carry insuf-ficient insurance.
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D. Do Changes in the Tort System (i.e., increases in the number ofclaims, or payouts per claim) Help Explain the Malpractice Crises
that Hit the United States in 2000-2003?
Every decade or so, the price of malpractice insurance spikes. Whenthis happens, providers and their insurers routinely blame the legal system,contending that claim rates and jury awards are shooting skyward. Becauseour Texas data starts in 1988, we cannot say anything useful about the mal-practice crises that occurred in the 1970s and 1980s. We can say, however,that the insurance crisis that hit Texas in 2000-2003 was driven by forcesoperating outside the liability system. During the years immediately pre-ceding this crisis and throughout the crisis years themselves, the number ofclaims (controlling for population) and the dollars paid per claim (control-ling for inflation) held steady or declined. Defense costs rose at a healthyclip, but they did not constitute a sufficiently large share of total payouts todrive a malpractice crisis. They also rose steadily, rather than suddenly,making them poor candidates to explain insurance price spikes. Thus, in-surance-side dynamics provide the most likely explanation for the premiumspikes that occurred in 2000-2003.
E. Impact of Tort Reforms on Claim Frequency and Payouts
If the object of tort reform is to reduce the amount of money thatflows through the liability system, the package of lawsuit restrictions Texasadopted in 2003 was a spectacular success. After being fairly stable for thepreceding decade, the number of paid claims per 100,000 Texas residentsfell by 57 percent from 2004-2008. The decline was not evenly spreadacross age categories, however. The frequency of claims involving babiesand children declined by 41 percent, while the number of claims involvingnon-elderly and elderly adults fell by roughly 65 percent. Over the sameperiod, claim severity, defined as the payout per capita for all claims withpayouts exceeding $25,000 (in 1988 dollars), dropped by 29 percent fornon-elderly claimants and 33 percent for elderly claimants.127 Combined,these findings imply a 75 percent drop in total payouts.
Anecdotal evidence also reflects the strong impact of the 2003 tort re-form legislation. In 2009, claims intake at the Texas Medical LiabilityTrust (TMLT), the state's largest malpractice carrier, was "approximatelyhalf of the amount [TMLT] experienced in the years prior to tort reform,"
127. PAIK ET AL., supra note 113, at 13.
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even though the number of insured physicians increased.128 In 2009,TMLT's "[t]otal trial losses ... amounted to less than $1 million, one ofthe lowest trial loss years ever recorded."l 29 All told, TMLT attributes a 50percent decline in the cost of medical liability insurance to the 2003 re-forms. 130 Other medical malpractice carriers have also reduced prices sub-stantially.
CONCLUSION
Readers should now understand that the manner in which the UnitedStates seeks to protect patients from avoidable harms is dysfunctional. Alt-hough the rhetoric of patient safety is heard everywhere, the fragmentationof the health care delivery system reduces accountability, and the predomi-nant "encounter-based, quality-insensitive, fee-for-service" payment sys-tem fails to incentivize providers to deliver error-free care. To the contrary,customary payment arrangements, which compensate providers for theadditional services injured patients require, make medical errors profitableand discourage providers from making desirable improvements.
The system for compensating injured patients is also nothing to bragabout. Because it is expensive and slow, it is only a viable option for pa-tients with severe injuries and large damages. These are also the only pa-tients that can find plaintiffs' attorneys-since their cases are the only oneswith damages large enough to justify acceptance by a plaintiffs attorneywho is working on contingency. Small claims have too little profit potentialto support a credible threat of going to trial, and without that threat, a plain-tiffs' attorney cannot force an insurer to pay. The result is dramatic under-claiming-which makes it difficult for the liability system to play a sub-stantial role in quality improvement.
In the words that concluded the Harry and Louise commercial thathelped sink the Clinton health reform bill in 1994, "there's got to be a bet-ter way." To date, the United States has not yet found it.
128. TExAS MEDICAL LIABILITY TRUST, 2009 ANNUAL REPORT 6 (2009). This is in nominaldollars; the decline would be larger if adjusted for inflation.
